Understanding the UK’s ‘economic backbone’

Since the financial crisis of 2008, the UK economy has shifted quite significantly to one that relies less on state spending to provide jobs and growth, and which instead puts its faith in enterprise as the engine of prosperity.

While that overall strategy may be uncontroversial, what’s been surprising until recently is the lack of robust research evidence on the drivers that enable those who start and run small to medium sized enterprises (SMEs) to thrive – growing turnover and employment and ultimately boosting our national economic performance.

Recognising this gap in our knowledge, ESRC, the Department for Business, Innovation and Skills (BIS), Innovate UK and the British Bankers’ Association provided funding three years ago to allow academics from leading university business schools to join together in a unique collaborative research institute – the Enterprise Research Centre (ERC).

ERC consists of 28 staff across five university business schools – Aston University, the University of Birmingham, Imperial College London, the University of Strathclyde and Warwick Business School. Our work has focused on six key themes: ambition, business demography, diversity, finance & governance, innovation & exporting and leadership.

We have put new analysis and data on small firm growth into the public domain which is giving us a better understanding of the contribution of SMEs to the UK’s economic geography.

For example, our study of innovation rates across England, Scotland, Wales and Northern Ireland, found an ‘arc of innovation’ stretching from Cambridgeshire to Gloucestershire, where the companies developing novel goods and services are most densely concentrated.

Our annual Growth Dashboard report, meanwhile, has shown that the ability for businesses to scale and grow quickly doesn’t necessarily depend on being based in one of our main cities. In fact, rapid growth is occurring in every part of the country, with SMEs in rural Northern Ireland having the highest chance of reaching £1million turnover in their first three years. Start-ups in Cornwall have a higher survival rate in their early years than those in London, despite the capital seeing the highest numbers of individuals taking the plunge.

But we’ve also uncovered some uncomfortable truths. Our report Unlocking UK Productivity, co-authored with Goldman Sachs and the British Business Bank, found that the ‘puzzle’ of the UK’s static productivity performance – despite record levels of employment growth – can be explained partly by Britain’s relative weakness when it comes to SMEs’ engagement in exporting and innovation.

There’s clear evidence that those small firms that embrace internationalisation from the outset are more productive, giving us a better chance of keeping up with our overseas competitors. But a related and crucial factor is growth ambition. Our research on the Sociology of Enterprise has demonstrated that the attitudes of business-owners towards growth is shaped by factors such as gender, family background, education, cultural norms and international links. Furthermore, there is a positive relationship between ‘growth disposition’ and business growth.

Knowing this kind of detail about the landscape of enterprise in this country is incredibly important. With firm evidence about how, where and why SME growth is occurring, policymakers can ensure the ecosystem they put in place to support businesses is the right one – one that’s rooted in hard evidence.

I’m delighted to say that the importance of our work has been fully recognised by our funders, including the ESRC, who recently extended their support for our wide-ranging research programme on SME growth for a further two years.

This will allow us to conduct an extensive programme of further research on topics including how SMEs access and use alternative finance; entrepreneurial ambitions and the role of place versus personality; and SME-university links and their impact on innovation and productivity.